Barclays faces legal scrutiny over role in £90m ‘Ponzi scheme within a Ponzi scheme’
Barclays could be on the hook for as much as £37m over its role in a collapsed ‘Ponzi scheme’ after failing to dismiss claims brought by the company’s liquidators.
The FTSE 100 finance giant provided banking services to a company called Denaro from 2013 until its demise a decade later, at which point it faced more than £90m of claims from creditors, including hundreds of retail investors who were left “severely out of pocket”.
Denaro, which was set up in Liverpool by an IT worker, a car mechanic and a carpet salesman, none of whom had any background in finance, was able to persuade locals to hand over thousands of pounds each in ‘loans’ for which they would be rewarded with a three per cent monthly return.
The founders allegedly used the company’s Barclays account to transfer investor funds into a separate partnership account, also operated by Barclays, from which they “took very substantial sums for themselves” while pouring cash into other speculative investment schemes. In a bizarre twist, some of these would later turn out to be Ponzi schemes to which the founders themselves fell victim.
The remainder of the cash was transferred back into the company bank account to deliver ‘interest’ payments to shareholders, which the founders were only able to pay for by recruiting funds from new investors. The scheme closed to new investors in 2019 and the company was ordered to shutter last year.
Lawyers acting for liquidators Begbies Traynor are seeking to recover sums owed to creditors from Barclays.
“The Ponzi scheme could not have been operated but for the banking facilities provided by Barclays,” the lawyers argued in court.
They accused Barclays banker Andrew Wileman, who was a relationship manager for both the company and the partnership account and remains an employee of the bank, of having “dishonestly assisted the directors in their alleged breaches of fiduciary duty” by waving through tens of millions of pounds in transactions between the accounts without flagging concerns.
‘Wholly misleading picture’
In evidence submitted to court, Wileman told Barclays colleagues in 2020 that the founders “are and have always been very transparent with me”, implied their evidence was reliable and “then endorses and elaborates a wholly misleading picture of Denaro, as a ‘members’ club’ that carries out ‘99 per cent FX speculation’ and that returns funds to shareholders”.
Wileman’s assurances supposedly led his colleague, a risk assessment manager, to conclude the bank was “comfortable [with] that from a risk perspective due to the fact that they no longer allow new members”.
Barclays’ lawyers sought to have the case thrown out, arguing that Wileman did not act to shield the company from scrutiny. But a judge last week ruled the case can go to trial, leaving the bank on the hook for transactions it oversaw.
Nearly 1,000 Brits poured thousands of pounds each into the failed scheme, which at its peak had assets in excess of £41m, Companies House filings show. Some have taken to social media to record their frustration at Barclays’ operation of the company’s accounts, which they allege was key to the scheme’s credibility.
“One thing I can say for sure, had Barclays not been a part of this sh*tshow I would have stayed well clear,” one social media user, who described themselves as an investor in the scheme, wrote on social media.
Barclays declined to comment. A Denaro director did not respond to a request for comment.